The recent second-quarter earnings results from UPS (UPS 1.42%) weren't good and definitely set the cat among the pigeons in the Wall Street analyst community. No fewer than 11 analysts promptly cut their price targets on the stock.
Of the companies lowering price targets, Barclays is at a low of $120 while UBS is at $159 and Baird is at $160.
A disappointing earnings report
While it's never good news to see a price target cut, it's worth noting that Barclays' low target implies a 6% downside, while Baird's high target implies a 25% upside from the current price. Still, it's not a good idea to slavishly follow Wall Street targets, not least after the kind of earnings report the transportation company delivered.
I'm somewhat understating matters by describing it as "disappointing." Adjusted operating profit declined 30.3% year over year in the first half, slightly below the low end of the guidance for a 20% to 30% decline given in March. Moreover, the new revenue guidance of $93 billion is slightly below the midpoint of the previous guidance range of $92 billion to $94.5 billion. Still, the real killer was the lowering of full-year adjusted operating margin guidance to 9.4% compared to a range of 10% to 10.6% previously.
The report's main piece of good news came from the return to volume growth in the U.S. Still, that's likely because UPS took on a plethora of new e-commerce customers whose volume "exploded," according to CEO Carol Tome on the earnings call. The problem is the customers' volume deliveries are less profitable, hence the margin issues.
Image source: Getty Images.
What UPS needs to do now
After overestimating the volume environment in 2023, management has arguably done so again in 2024. Now, it needs to regain investors' confidence by delivering a few quarters that are either in line with expectations, or that don't involve lowering guidance. Until that happens, the question marks will remain with the company.
